First-Round Bombshell: Number of Bidders Likely 90% Lower than CMS’ Expectations

BALTIMORE–CMS is likely grappling with far fewer bids for the
first round of competitive bidding than it anticipated–about 90
percent fewer, according to attendees at Thursday’s meeting of the
Program Advisory and Oversight Committee.

CMS had projected it would receive about 16,000 bids in its
initial round of DMEPOS bidding; in reality, it has probably
received fewer than 1,500, according to PAOC member Cara
Bachenheimer, vice president of government relations for Elyria,
Ohio-based Invacare Corp.

And of those bids, she continued, there is no way of knowing how
many are valid.

CMS convened the PAOC, formed to advise the agency on
competitive bidding, for the Oct. 11 meeting, its first since May
of 2006.

While the agency has remained mum about the number of bids it
received by the Sept. 25 deadline, only 2,200 provider locations
are accredited across the first 10 competitive bidding areas,
officials said during the meeting.

Those bidders remaining in the accreditation pipeline won’t push
the number much higher. Some 100 are still pending accreditation by
the Oct. 31 deadline, Sandra Bastinelli, division director for
medical review and education in CMS’ Program Integrity Group, told
committee members.

That means the maximum possible universe of sites in the first
round is approximately 2,300.

Whether competitive bidding can work with that number of
providers is up for debate.

Bachenheimer said maybe a greater percentage of bidders would
win contracts, but that would depend on the capacity that bidders
state and that CMS and Palmetto GBA, its Competitive Bidding
Implementation Contractor, believe is possible. She surmised that
CMS was surprised by the low figure. “I think the number of ‘real’
suppliers is much smaller than CMS expects–or there are a lot of
numbers that shouldn’t be out there.”

If that’s the case, Bachenheimer said, it might demonstrate that
CMS’ system of giving out numbers needs to be scrutinized.

However, Herb Kuhn, recently named CMS deputy administrator,
said he was “very pleased by the number of suppliers who responded”
to the bidding process. Kuhn added that he was confident “we’ll
have a pretty robust offering” of suppliers for beneficiaries in
the first 10 CBAs.

Others at the meeting, attended by an estimated 150 to 200 HME
stakeholders, weren’t so sure.

Based on calculations from Waterloo, Iowa-based VGM, Vice
President of Development Mark Higley told CMS during public
comments that the buying group has about 3,000 member locations
owned by approximately 2,000 companies. Using that ratio, he said,
the 2,200 locations that are accredited so far probably represent
1,500 to 1,600 companies.

Higley also confirmed the highest sequential bidder number the
buying group could find among its members was about 1350.

“They have eight percent of eligible providers and they’re happy
with that?” asked VGM’s John Gallagher, vice president of
government relations. “It doesn’t make sense.” If there aren’t
enough winning suppliers, he added, beneficiaries’ access to care
will be limited where there are shortfalls. “I don’t understand how
that would be a positive,” he said.

“It’s very troublesome that their estimates in the final rule
exceed [the number of bidders] by about 10 times,” said meeting
attendee Dave McCausland, senior vice president of planning and
government affairs for The Roho Group, Belleville, Ill.

“If they so dramatically overestimated the number of bidders,
what does that do to quality, access and choice? If you have 10
times fewer providers offering these products in any [CBA], some of
which are quite expansive geographically, how close is the nearest
product for the patient and caregiver?” McCausland wondered.

“If there are 10 times fewer suppliers,” he continued, “… the
winners will have fewer competitors, and both referral sources and
beneficiaries will have fewer choices.”

Under its bid evaluation structure, CMS will determine how many
suppliers bidding below its “pivotal” bid are needed to meet
beneficiary demand for each product category in each CBA. If it
doesn’t get enough suppliers from below the pivotal bid, CMS will
move up to higher bids until it has enough suppliers to meet the
capacity it needs.

But the final rule doesn’t address the scenario of “running out”
of bidders eligible to win contracts, Bachenheimer pointed out.

“What’s not addressed at all is what happens if you don’t have
enough bidders, period, or if you get into those that don’t meet
financial or other criteria,” Bachenheimer said.

Limited meeting agenda
While those questions and others–such as why CMS’ estimates were
so high and why so few providers bid–were the issues committee
members wanted to discuss, Bachenheimer said, the PAOC session
lasted just one day and focused mainly on technical bidding
problems in Round One and updates on Round Two, when bidding will
expand to 70 more metro areas across the U.S.

“Maybe that’s why a number of members didn’t show,” Bachenheimer
said, noting that the committee was given the agenda only a week
ahead of time. Five of the PAOC’s 21 members were absent from the
meeting.

Bachenheimer also voiced strong concerns with CMS’ lack of
transparency regarding competitive bidding. “We’ve made repeated
requests for substantive answers” to problems but can’t get them,
Bachenheimer said. Even though competitive bidding will determine
the fate of thousands of providers, she added, “the whole process
has so many unknowns … There should be an open dialogue on
something that’s so crucial” to so many.

“The meeting was pretty much what I expected: CMS saying, ‘We
had software problems, they were fixed or will be fixed before the
next round,’” said attendee Mike Hamilton of Association Services,
Hoover, Ala., director of the Alabama Durable Medical Equipment
Association.

But Kuhn told HomeCare Monday the meeting was set for
one day because that’s what many PAOC members wanted, noting
“they’re all busy, too.” As for the agenda, he said, policy issues
surrounding competitive bidding had largely been dealt with, and
CMS’ main task now is focusing on its implementation in Round
Two.

Regarding any “unintended consequences” of competitive bidding,
such as possible hits on beneficiary access, Kuhn said, “that’s
what the PAOC is about. If there are problems, we’ll address them.
The key is to make sure beneficiaries are served
appropriately.”

In other information given at the meeting, officials said CMS
plans to pick the first-round winners in December but will not
announce them until March or April of 2008. The gap is intended to
give the winners time to decide whether they want to sign
contracts; if not, additional suppliers will have to be chosen.

The agency said it would also unveil “very soon” the next 70
CBAs in which the bidding project will be rolled out. Bidding for
Round Two will begin next year, and reimbursement based on that
round is expected to start in 2009.

In addition, officials announced steps intended to smooth the
bidding process in the second round, including:

–Simplification of the registration process while keeping the
bidding system secure.
–An “intensive” campaign to educate suppliers on National Supplier
Clearinghouse requirements to make sure they’re correct and don’t
snag bidders during registration.
–Implementing controls to keep multiple users from accessing the
system with the same user ID.
–Preparing “a comprehensive and user-friendly guide” to the
bidding process.
–Home page status indicators with hotlinks to incomplete
information and pointers to incomplete bid data.
–Letting bidders copy and paste identical bid data from one bid
sheet to another, rather than having to re-enter it.
–Changing the verbiage in error messages to provide “clear and
user-friendly language, free of technical jargon.”

Some PAOC members, as well as some public commenters, urged CMS
to take these additional steps:

–Reveal the actual financial ratios used to determine the
financial viability of bidders. So far, the agency has refused to
do so, citing fear that some would use the data to gain an unfair
advantage.
–Announce the date by which all Medicare suppliers must be
accredited. This is a key step that some PAOC members said would
prompt suppliers outside current bidding areas to get accredited as
soon as possible.
–Drop complex rehab as a bidding category. “Of all power mobility
device users, at least 60 percent, and perhaps 80 percent, have
requested customizing from manufacturers or others to configure
systems that meet individual needs,” said PAOC member Jean Minkel,
rehab services consultant for Independence Care System, New York.
“I don’t see the bid process meeting these needs for people who are
already functionally limited.”
–Create some kind of bid appeals mechanism, which Congress didn’t
authorize when it wrote the bidding law. The rejection of a bid “is
a death sentence without any ability to appeal,” said committee
member Michael Tootell of MGFT Decisions.

Just ‘a bad idea’
“It’s a train wreck,” Roho’s McCausland summed up after the
meeting, adding that competitive bidding will “absolutely” harm
both beneficiaries and providers. “Unfortunately, this is so
obvious to anyone in the industry. If you know a cataclysmic event
is about to occur, you need to do everything possible to stop it,
but we [have been] helpless to do so,” he said.

The purpose of competitive bidding “has shifted from purely
saving costs to eliminating suppliers,” ADMEA’s Hamilton said. He
pointed out that many of the nation’s small suppliers are providing
service where no one else will.

Large national suppliers, he said, which are likely to dominate
competitive bidding, “will be the same as HMOs, where you have to
wait three or four days for a hospital bed.” He noted that Part A
(hospital) costs could be raised by poorer DME service.

A comment from John Shirvinsky, executive director of the
Pennsylvania Association of Medical Equipment Suppliers, seemed to
represent the industry’s most widely held view of competitive
bidding. Perhaps fittingly the last speaker of the day, Shrivinsky
told CMS officials that “competitive bidding is a bad idea and
ridiculous process.”

To comment on CMS’ bidding system, e-mail [email protected] by Nov. 9.

To comment on competitive bidding overall, e-mail [email protected].